Question

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:

	Cost Formula	Actual Cost in March
Utilities	$16,100 + $0.18 per machine-hour	$	22,040
Maintenance	$38,400 + $1.10 per machine-hour	$	57,500
Supplies	$0.80 per machine-hour	$	18,200
Indirect labor	$94,100 + $1.20 per machine-hour	$	122,600
Depreciation	$67,500	$	69,200

During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

1) Calculate the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Utilities

Maintenance

Supplies

Indirect Labor

Depreciation

Total

2) Calculate the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Utilities

Maintenance

Supplies

Indirect Labor

Depreciation

Total

Answer 1

1.)	Activity Variance for March:-
				Amount in $
		Flexible Budget	Planning Budget	Activity Variances	Variance
	Machine-hours	21,000	23,000
	Utilities ( 16,100 + ( 0.18 per machine hour )	19,880	20,240	360	F
	Maintenance ( 38,400 + ( 1.10 per machine hour )	61,500	63,700	2,200	F
	Supplies ( 0.80 per machine hour )	16,800	18,400	1,600	F
	Indirect Labor ( 94,100 + ( 1.20 per machine hour ) )	119,300	121,700	2,400	F
	Depreciation ( 67,500 )	67,500	67,500	-	None
	Total $	284,980	291,540	6,560	F
2.)	Spending Variance for March:-
				Amount in $
		Actual Results	Flexible Budget	Spending Variance	Variance
	Machine-hours	21,000	21,000
	Utilities ( 16,100 + ( 0.18 per machine hour )	22,040	19,880	2,160	U
	Maintenance ( 38,400 + ( 1.10 per machine hour )	57,500	61,500	4,000	F
	Supplies ( 0.80 per machine hour )	18,200	16,800	1,400	U
	Indirect Labor ( 94,100 + ( 1.20 per machine hour ) )	122,600	119,300	3,300	U
	Depreciation ( 67,500 )	69,200	67,500	1,700	U
	Total $	289,540	284,980	4,560	U